Institutional Innovation by the Asian Infrastructure Investment Bank

The Asian Infrastructure Investment Bank [AIIB] is the world’s newest multilateral development bank [MDB] and already one of Asia’s largest international organizations by membership. This paper will compare the institutional structure of the AIIB with that of the Asian Development Bank [ADB] to identify areas in which the AIIB has innovated as a matter of international institutional law. In reviewing the constituent documents, bylaws, and operational policies of the two banks, the paper will juxtapose the AIIB and ADB’s approaches to membership, project finance, voting, and governance. It will identify not only innovations, but also the likely implications, positive and negative, thereof. Finally, it will assess the degree to which these innovations may impact the AIIB’s ability to partner with existing MDBs. In particular, the AIIB’s approach to project finance and governance mark a significant break from the status quo, while in other areas it has remained conservative.

Law Clerk to the Hon. Jane A. Restani, United States Court of International Trade. I wish to thank Professor Dr Neils M. Blokker for his guidance in constructing the thesis from which this paper was derived. The paper was prepared in the author’s personal capacity. All views expressed herein are the author’s own and do not represent the view of any US government entity.

Footnotes

*

Law Clerk to the Hon. Jane A. Restani, United States Court of International Trade. I wish to thank Professor Dr Neils M. Blokker for his guidance in constructing the thesis from which this paper was derived. The paper was prepared in the author’s personal capacity. All views expressed herein are the author’s own and do not represent the view of any US government entity.

4. Rebecca M. NELSON, “Multilateral Development Banks” Congressional Research Service Report R41170 (2 December 2015) at 3. In July 2014, Brazil, Russia, India, China, and South Africa signed the Agreement on the New Development Bank. Ibid., at 17. Agreement on the New Development Bank (2015).

5. The AIIB’s “region” is that “classified as Asia and Oceania by the United Nations”. AIIB, “Report of the Chief Negotiators on the Articles of Agreement of the Asian Infrastructure Investment Bank” (22 May 2015), art.1(2) [Chief Negotiators’ Report]; AIIB Agreement, art.1(2). The ADB’s “region” encompasses the terms of reference for the UN Economic Commission for Asia and the Far East. ADB Charter, art.1. Comparing AIIB and ADB membership rosters at the AIIB’s time of founding, noteworthy differences arise. Geographically, the AIIB had more members from Central Asia and the Middle East, whereas the ADB counted more Southeast Asian and Oceanian members. Geopolitically, fellow BRIC states supported China’s initiative, whereas India and China are the only BRIC states in the ADB. The US and Japan declined to join the AIIB. Both banks’ European participants were roughly the same.

6.HUMPHREY, Chris
, “He Who Pays the Piper Calls the Tune” (2017) 12Review of International Organizations281
at 286.

7. See Leslie MAASDORP, (2017) 1 September “As the BRICS New Development Bank Turns Two, What Has It Achieved?” World Economic Forum.

17. Regarding current AIIB members, see Members and Prospective Members of the Bank, aiib.org (last updated 21 May 2018). The IBRD is not open to non-states, but counts 189 States Parties, not including North Korea. Articles of Agreement of the International Bank for Reconstruction and Development, 2 UNTS 134 (1945), art. II, s. 1(b); Articles of Agreement of the International Monetary Fund, 2 UNTA 40 (1945), art. II, s. 2.

18.AIIB Agreement, arts. 3(1)–(3).

19. These include, e.g. Guam, Hong Kong, Macau, and French Polynesia.

20.ADB Charter, arts. 3(1)–(3).

21. See e.g. Asian Development Bank, “Memorandum of Understanding for Strengthening Cooperation Between Asian Development Bank and Asian Infrastructure Investment Bank” (2 May 2016).

131. Governors can delegate many duties to the non-plenary BD, but not powers “expressly given to” governors by the constituent document. AIIB Agreement, art. 23(2)(xi); ADB Charter, art. 28(2)(xii). Votes described in this section are such specifically assigned powers.

133. Lee, supra note 36 at 93. One exception might be the UN Development Programme; however, it is not traditionally labelled a “bank”. See Phillip LIPSCY, “Who’s Afraid of the AIIB” Foreign Affairs (7 May 2015).

134.AIIB Agreement, art. 24(2); ADB Charter, art. 29(2).

135.AIIB Agreement, art. 28(2)(i).

136.ADB Charter, art. 33(2).

137. AIIB, “Rules of Procedure of the Board of Governors” (2016), s. 11.

138. This is also the trend globally. N. BLOKKER, “Asian and Pacific International Organizations” Grotius Center Working Paper 2016/052-PIL, 23.

155. ADB, “Past ADB Presidents”, adb.org (accessed 15 May 2017).
SCHERMERS, Henry G.
and
BLOKKER, Niels M.
, International Institutional Law (Leiden: Martinus Nijhoff Publishers, 2011)
at §352. Similarly, WB Presidents have always been American and IMF Presidents have always been European. See Rajiv BISWAS, “Reshaping the Financial Architecture for Development Finance”, London School of Economics Working Paper 2/2015, 2015 at 4; Callaghan and Hubbard, supra note 8 at 130. The IMF Presidency was first contested in 2016.
CHESTERMAN, Simon
, “Asia’s Ambivalence About International Law & Institutions” (2016) 27European Journal of International Law945
.

176. See “AIIB to be lean, clean and green, Chinese officials say” Xinhua (13 April 2015) (“Lean is cost effective; clean, this bank will have zero-tolerance on corruption; green means it is going to promote the economy”).

182. Chow, supra note 158 at 23 (“periodically” interpreted as “quarterly”). The EIB’s non-resident directors meet ten times per year.
MARTINEZ-DIAZ, Leonardo
, “Boards of Directors in International Organizations” (2009) 4Review of International Organizations383
at 398.

183.AIIB Agreement, art. 27(1).

184. Callaghan and Hubbard, supra note 8 at 131 (EIB is the only other MDB with non-resident directors); World Bank, “Status Report FY09” (2009), i (WB declined to adopt a non-resident BD); Takatoshi ITO, “The Future of the AIIB”, Center on Japanese Economy and Business Working Paper, 2015 at 5 (Japan requires a resident BD); Lee, supra note 36 at 103 (resident BDs are “a minimum condition for institutional autonomy”). But see Humphrey, supra note 16 at 6 (arguing that resident directors have little development impact).

185. See e.g. Davis and Wei, supra note 118; Chin, supra note 65 at 16 (the Zedillo Commission Report estimates that the IDB BD costs about $70m annually); Humphrey, supra note 16 at 20 (percentage of MDBs’ net income needed for administrative costs, including directors and staff, ranges from 194% (IBRD) to 27.5% (EBRD)). The ADB has one of the lowest administrative expenses to core capital ratios among MDBs. ADB, “Budget of the Asian Development Bank for 2017” (2016) at app. 5 s.11.

223.Ibid., at art. 13. The second round of public consultations concluded on 26 March 2018, but a final draft of the complaints handling mechanism has not yet been issued. AIIB, “Complaints Handling Mechanism” (28 May 2018).

* Law Clerk to the Hon. Jane A. Restani, United States Court of International Trade. I wish to thank Professor Dr Neils M. Blokker for his guidance in constructing the thesis from which this paper was derived. The paper was prepared in the author’s personal capacity. All views expressed herein are the author’s own and do not represent the view of any US government entity.